A federal grand jury in the Southern District of Texas, Houston Division, has
returned an indictment charging two developers with bribing a former official of
the city of Houston, Assistant Attorney General Alice Fisher of the Criminal
Division announced today. The grand jury indicted Houston residents Andrew A.
Schatte, 54, and Michael D. Surface, 44, for conspiring to bribe and to deprive
the citizens of Houston of the honest services of Monique McGilbra,
then-Director of the city’s Building Services Department (BSD). In addition,
Schatte and Surface were charged with substantive counts of honest services wire
fraud, and Surface was also charged with making false statements to FBI agents
investigating their relationship with McGilbra.

The indictment charges that Schatte and Surface, operating a company called
The Keystone Group Inc., offered and gave McGilbra a series of things of value
directly and through her boyfriend to influence her in her official capacity in
connection with her administration of two city contracts—one for the development
of the Houston Emergency Center and another to develop a consolidated fire
station and administrative offices for the Houston Fire Department.

From January 2000 until April 2003, McGilbra served as director of the BSD—the
city department responsible for building, leasing, and maintaining city
building. Among the things of value Schatte and Surface provided to McGilbra
were cash, meals, drinks, Houston Texans football tickets, use of a condominium
in Northern California, travel expenses for a trip to San Antonio, and a $1,000
gift certificate. Additionally, Keystone hired McGilbra’s boyfriend, Garland
Hardeman, who was living in California, as a “consultant” to locate deals for
Keystone in California for $3,000 per month plus expenses. Hardeman provided
monthly payments to McGilbra out of the Keystone payments. In January 2001,
Keystone offered Hardeman $250,000 in “incentive” pay if his girlfriend’s
department awarded the fire station contracts to an entity owned by Keystone.
Though a city council committee originally recommended Keystone to complete the
project, it was cancelled before the contract was officially awarded.

This indictment is part of an on-going investigation into municipal corruption
in both Houston and Cleveland, Ohio. In May 2003, McGilbra pled guilty to
conspiring to accept, in order to be influenced in her official capacity, the
things of value from Keystone and other items from another Houston contractor,
Gary Thacker. She entered a guilty plea in federal court in Cleveland at the
same time, in which she also admitted similar unlawful conduct with businessman
Nate Gray in connection with his attempts to obtain an energy services
subcontract from the city of Houston.

McGilbra was sentenced to concurrent sentences of 36 months in Cleveland and
30 months in Houston. Hardeman was convicted of unrelated charges in federal
court in California and was sentenced to a one-year term. Both Hardeman and
McGilbra have cooperated in the Cleveland and Houston cases. Thacker pled
guilty and was sentenced to 10 months in prison. Gray was convicted by a jury
and sentenced, on charges including but not limited to his conduct in Houston,
to 15 years in prison.

If convicted, Schatte faces imprisonment of up to 45 years and fines of up to
$750,000. Surface faces a possible prison sentence of up to 50 years and fines
of up to $1 million.

Both defendants were arrested by the FBI in Houston this morning and appeared
before U.S. Magistrate Judge Calvin Botley this afternoon. They were both
released on bond pending trial before U.S. District Judge Lynn N. Hughes.

This case is being prosecuted by Trial Attorneys Mary K. Butler and John P.
Pearson from the Criminal Division’s Public Integrity Section, headed by Section
Chief William M. Welch II, with assistance from Assistant U.S. Attorney Edward
F. Gallagher in the U.S. Attorney’s Office for the Southern District of Texas.
The original investigation in Cleveland was prosecuted by Butler and Assistant
U.S. Attorneys Benita Pearson and Ann Rowland of the U.S. Attorney’s Office for
the Northern District of Ohio. These cases are being investigated by the
Federal Bureau of Investigation in Houston and Cleveland.